Asians Sell Billions in U.S. Debt

Japanese and Chinese banks are selling hundreds of billions of dollars of U.S. debt as investors sour on the future of U.S. Treasuries.

In June, Japanese investors sold the most amount of U.S. Treasuries in a one-month period since 2013, when the taper tantrum caused yields to rise and investors to leave the Federal debt market on the fear of rising yields and falling prices for U.S. government debt. At the same time, Japanese investors sold German and French government debt, leading to concerns that Asians are losing interest in investing in the west.

A total of $9.4 billion of long-term Treasuries were sold in Japan in June, after a combination of quantitative easing at home, the end of QE in the U.S., and falling commodity prices have all helped the U.S. dollar appreciate considerably against foreign currencies and particularly against the yen.

The Japanese yen has lost about 25% of its value against the U.S. dollar in the last year, making Treasuries a strong winner in the Japanese market in the past twelve months. As the yen falls, U.S. Treasuries gained in value, while also paying interest to holders of the debt.

A much larger selloff has been noted in China, where investors have become net sellers of U.S. debt. The trend of massive selloffs of U.S. Treasuries began in December 2014, and four of the last six months on record have seen Chinese investors selling more Treasuries than buying. In total, about $180 billion has been sold since December 2014.

Unlike with the Japanese yen, the Chinese yuan has been largely insulated from a fall in value versus the dollar, which has largely outperformed in currency markets over the last year and a half. Since June 2014, the Chinese yuan is largely flat. The currency has largely been helped by China’s purchase of Treasuries, which have limited outflows of yuan and kept the value of the currency from increasing versus the dollar. Opening Capital Accounts

Some analysts in China have already pointed to the Treasury sell-off as the first step in a liberalization of capital accounts that will cause the Chinese yuan to depreciate while also possibly stimulating domestic demand.

The selloff of Treasuries, which some suspect is spearheaded by the Chinese government, may be the first step in allowing the yuan to fall in value. While that would hurt the value of China’s exports, analysts believe it is instrumental in letting Asia’s largest economy shift towards a domestic demand-driven economy, while also providing liquidity to help China’s middle class spend more in the local economy.

China has also recently spent a significant amount of money propping up its flagging stock market. According to some studies, the Chinese government has already spent over $800 billion to keep stocks from falling.

Chancellor of the Exchequer of the United Kingdom from 1992 to 2007. Prime Minister of the UK between 2007 and 2010. Inaugural 'Distinguished Leader in Residence' at New York University. Advisor at World Economic Forum